The S&P/TSX composite index lost 35.14 points to 12,202.26 after the U.S. Labour Department reported that the economy cranked out 200,000 jobs in December, against expectations of 155,000.

The U.S. jobless rate improved by 0.2 percentage points to 8.5 per cent.

The TSX Venture Exchange was ahead 2.46 points to 1,519.92.

The Canadian dollar was down 0.49 of a cent at 97.64 cents (U.S.) amid a weak domestic employment report and a rising greenback.

Statistics Canada said that Canada's jobless rate edged up 0.1 percentage point to 7.5 per cent last month even as the economy racked up modest job gains. The agency reported that the economy created 17,500 jobs in December. The gain followed losses totalling 73,000 over the previous two months. But all the job gains were in the weaker categories of part-time and self-employment, whereas full-time work fell by 25,500.

U.S. markets were mainly lower with the Dow Jones industrials down 37.35 points to 12,378.35.

Expectations for U.S. employment growth picked up Thursday after private payrolls agency ADP said its own calculations for hiring gains were much stronger than forecast. ADP estimated that the U.S. private sector created 325,000 jobs in December. The Labour Department said Friday that the sector actually created 212,000 jobs last month.

Analysts noted a couple of weak points in the U.S. data.

Paul Ashworth, chief U.S. economist at Capital Economics noted that 42,000 of the job gains were in the couriers and messengers sector, which normally never adds or subtracts more than 1,000 jobs in any single month.

He said the labour data suggests that “this is a bigger than normal seasonal effect linked to the increased popularity of online holiday shopping.”

Ashworth said unseasonably mild weather also appears to have been a factor, “which would help explain why construction sector employment apparently jumped by 17,000 last month.”

Meanwhile, worries about the euro zone government debt crisis are never far away and Italy caught traders' attention Friday.

The country's benchmark 10-year bond yield edged further above seven per cent, a borrowing rate that is considered unsustainable.

Traders also worried about the health of European banks, which are hurting due to fears that they will take big losses on their holdings of government debt and will struggle to raise new cash to plug those holes.

Trading in UniCredit, Italy's largest bank, was halted on Thursday after the stock lost a quarter of its value in two days. The bank said Wednesday it would need to offer huge discounts to investors to raise money in a new share sale. The stock was down another 11 per cent on Friday.

Longer-term concerns about the euro and the region's financial system pushed the common currency to 15-month lows of $1.2775 (U.S.) on Thursday. It worsened Friday, moving down to $1.2724.

Outside the eurozone, Hungary was sliding deeper into its own financial crisis. It had to pay a staggeringly high interest rate of 10 per cent on its 12-month debt. That is far above the seven per cent level that forced Greece and Portugal to seek emergency bailouts to prevent them from defaulting on their debts.

Worries about spreading bank problems pushed the TSX financial sector down 0.7 per cent with Royal Bank (TSX:RY) down 58 cents to $51.76 and Scotiabank (TSX:BNS) slipped 26 cents to $51.38.

Oil prices moved lower despite data showing a stronger U.S. economy.

Prices dropped as traders focused on European economic reports that showed weaker factory orders in Germany and soft retail sales elsewhere in November. The euro zone has struggled to overcome massive government debts, and many economists expect it will fall back into recession sometime this year.

February crude on the New York Mercantile Exchange down 45 cents at $101.36 (U.S.) a barrel. The energy sector backed off 0.7 per cent while Canadian Natural Resources (TSX:CNQ) shed 48 cents to $38.85.

The metals and mining sector was down 0.15 per cent while March copper was down one cent at $3.42 (U.S.) a pound. Sherritt International (TSX:S) gave back 12 cents to $6.07.

European markets were well off session highs as London's FTSE 100 index gained 0.3 per cent, Frankfurt's DAX was down 0.9 per cent and the Paris CAC 40 dipped 0.2 per cent.

On the corporate front, the Jean Coutu Group (TSX:PJC.A), Quebec's largest drug store chain, reported net profits in its fiscal third quarter rose to $51.7-million or 23 cents a share. That compared with net earnings of $48.8-million or 21 cents a year ago. Revenue increased to $700.1-million from $681.1-million and its shares gained 18 cents to $13.02.

U.S. aluminum giant Alcoa Inc. plans to curtail another five per cent of its global smelting capacity as the company cuts costs in the face of weak prices. It's not known how the move would affect Alcoa's Canadian operations. Alcoa shares lost 2.14 per cent to $9.15 (U.S.).

Best Buy Co., the largest U.S. electronics retailer, says weaker than expected traffic during the week before Christmas and low demand in Canada and Europe put a crimp in its December sales. Revenue in stores open at least two years fell 1.2 per cent. Still, Best Buy reaffirmed its annual guidance and its shares rose 1.98 per cent to $23.91 (U.S.).

Potash Corp. of Saskatchewan (TSX:POT) has announced a four-week production shutdown starting next month at its Allan mine in the Saskatoon area. Its shares dropped $1.12 to $42.84.

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